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Espresso of Innovation: Payment Predators

London, 25 April 2014

By Dan West, Innovations Manager, FCB Inferno

Hello and welcome to this week's Espresso of Innovation; the hottest news and strongest stories from the world of creativity and technology filtered into a quick shot of inspiration. This week we look at winning wallets and perfecting payments.

With US smartphone payments up 101% this quarter compared to the same last year and 73% of those interviewed in the Millennial Disruption Index saying that they’d be more excited about a new financial offering from a tech company than from their existing bank, are we reaching the tipping point for a financial revolution? Dominant tech brands are carving into the transactions market with a three-pronged attack: mobile payments, branded wallets, and in-store beacons. Last week, several major players and new contenders made announcements that are poised to topple Big Banking’s house of cards.

First up, Facebook announced that it was competing with the likes of PayPal and Google Wallet, despite the failure of their first financial product attempt, Facebook credits. To allay privacy and security concerns, the company is discussing partnerships with TransferWise, Moni Technologies and Azimo, which all have good reputations. With such a large international presence Facebook could make considerable gains from both consumers and brands. Even by charging a negligible amount, they could undercut traditional transfer services, pass savings onto users and make a serious profit. For instance, brands could consider in-page purchases much in the same way betting apps work today and could significantly damage the processing fees credit card companies receive.

With over $1.6 trillion in mobile transactions made in 2013, China’s tech giants are following suit. In the past week, China’s dominant online retail site Alibaba has linked up with Japan’s Rakuten so their Alipay system is now used to sell internationally and search giant Baidu is launching their own mobile wallet (Baidu Wallet) in late April.

At the physical point-of-sale, hardware such as card readers and cash registers are extremely vulnerable to the tech invasion, especially those who straddle the online and offline worlds. Amazon, who already have consumers trust in handling payments, followed January’s rumours of a Kindle-based checkout with the news that CEO Jeff Bezos is pushing the Pay With Amazon team to secure more ground outside of their own site. Their play for dominance is shored up by the development of their own Kindle-style smartphone. Meanwhile, PayPal recently announced they were also “cautiously optimistic” about NFC HCE, a turnaround prompted by an NFC compatible iPhone rumour. However, currently there are estimates of over 200 million iBeacon ready iPhones and iPads for Apple’s in-store payment tech, so combined with their reputation as hit-makers Apple may emerge victorious.

Without the muscle to match these Goliaths, Massachusetts-based start-up LevelUp could be an interesting challenger nonetheless, given their highly attractive proposition for retailers. The company already breaks even while offering one of the cheapest ways for merchants to handle credit card payments (1.95% vs MasterCard’s 3-4%) and over time they hope to be able to drop to 0% by helping stores to encourage repeat business.

But mobile, NFC and beacons may already have been bypassed: Swedish start-up Quixter is trialling bio-payments. By simply scanning your palm on a reader the technology recognizes the customer and takes payment from their account. It’s so easy they have apparently have had to slow the process down by including a step of entering the last 4 digits of your mobile number as customers were paying too quickly and not checking the bill. Furthermore, some Penn State college kids took 3rd place at hacker competition GoogolPlex by reprogramming Siri so it is possible to pay via voice command (amongst other nifty tricks).

Digital payments have a long way to go before they become the norm but as zeitgeist-setting brands back this method and Millennials’ career growth means they wield more financial power, traditional transaction handlers are going to have to invest in up-and-coming solutions or develop their own to stay ahead.​